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by Christian Ingerl, Euro on Sunday

Whe investors are currently feeling in a rollercoaster in high-speed mode. The stock markets react extremely in these Corona times. Price fluctuations, some of which have never been seen before, do not only affect the big players in the DAX. The small caps sector has also been infected since the virus crisis.

For example, the SDAX lost a whopping 40 percent in the Corona crash in the few weeks between mid-February and mid-March. “Even if small companies appear to be more robust and dynamic on average, in such a case there is no longer a distinction between small and large caps,” explains Bjrn Glck, fund manager and small caps expert at fund company Lupus alpha. However, prices were not only dropping at a record pace, the recovery also fell rapid out. Only around nine percent of the small value index is currently missing the record high before the virus broke out.

“Opportunities open up for a stick picker when overdoing it,” says Glck. Individual companies, such as the medical technology manufacturer Drgerwerk, were wrongly affected. This in turn called Schnppchenjger on the scene. As a result, the “crisis winner” listing turned sharp again.

Not an isolated case, in turn the prices have risen sharply since the lows in March. This raises the question of whether there are still cheap values ​​on the market. There is no general answer to this. Investors need to differentiate between industries and different categories of stocks. Economic-related values, for example, are more favorable than economically resistant or robust growth values. These, in turn, are not comparable to turnaround candidates, for whom profit-related indicators can sometimes not be determined.

Strong foundation

In general, the German middle class, which employs more than 30 million people, is on a solid foundation. According to a recent analysis by DZ Bank and the Federal Association of Deutsche Volksbanken and Raiffeisenbanken (BVR), the average equity ratio here improved from 26.9 to 27.4 percent between 2016 and 2018. “Until recently, German medium-sized companies are in good business shape,” explains BVR board member Andreas Martin. “I am confident that a large proportion of the companies are very well placed to master the crisis.” In addition, the more than 1,500 companies surveyed were ready to continue making future-oriented investments. “It is optimistic that, despite the crisis, German SMEs are essentially sticking to what makes them special: their innovative strength,” says Uwe Berghaus, DZ Bank’s corporate clients board member. This also increases the prospects of success on the stock market for small caps, which were less popular in the good stock market year 2019.

“2019 wasn’t necessarily the year for smaller titles, but the trend will come back,” says expert Glck. There should not be a shortage of attractive candidates. “There are plenty of long-term opportunities for German small caps,” says the portfolio manager.

We started looking for promising stocks from the back row of stocks and divided them into three categories. “Economic winners” are values ​​that benefit particularly strongly from a recovery. The “robust ones” set pace regardless of economic development. After all, there are “crisis winners” who benefit from the pandemic.

Before we introduce the individual values ​​from the sections, a few important notes that count equally for all titles. The current profit estimates from the uro am Sonntag database are subject to great uncertainties due to the pandemic. Many companies have recently given up on future-oriented assessments.

And: The downside risks for companies remain high. New COVID-19 waves and lockdowns would delay the recovery, and it is not yet clear whether the economic stimulus programs will work. The government has reached deep into the pocket for the hoped-for “mince” by Finance Minister Olaf Scholz and is providing German SMEs alone with 25 billion euros. Investors should be particularly disciplined in this uncertain environment and not put everything on one card. Stop prices also protect against major losses.


The economic winners

Germany’s largest car rental company Sixt, whose business is extremely sensitive to economic changes, is one of the beneficiaries of an economic recovery. The collapse of air traffic as well as the exit restrictions not only pushed the company into the loss zone in the first quarter, dark clouds also lie over the second quarter, which the mobility service provider will report on August 13. CEO Erich Sixt expects “the worst quarter in the company’s history”.

However, this forecast should already be reflected in the course. The decisive factor for the further course of the share price is now how quickly the businesses recover. The 76-year-old founder was “cautiously optimistic” at the recent general meeting. After the lockdown was lifted in many countries, bookings increased again in the holiday regions in Europe and in the American business. The current plans – albeit with uncertainties – envisage a progressive normalization of demand in the second half of the year and a return to normal in 2021. If there is no second wave of Corona, Sixt has the best chance of further business recovery and the share will see strong gains.

A similar picture emerges at JOST Werke, which is also listed in the SDAX. The commercial vehicle supplier expects strong build-ups in the second quarter – and hopes for an upward trend thereafter. The recently initiated business transformation should have a positive impact on the Jost balance sheet. In order to reduce the dependency on the cyclical truck and trailer market, the company entered the agricultural business at the end of 2019 through the acquisition of Swedish Al.

“Since the market for agricultural tractors is only expected to decline by ten to 15 percent, the diversification should pay off in 2020,” said Commerzbank in a recent analysis. In addition, the rating also speaks for the paper. The current price-earnings ratio (P / E ratio) based on the results expected for 2021 is still in the single-digit range, the consensus assumes a strong increase in profit in the next year.

Deutsche Euroshop can also be found in Deutsche Brse’s small value index. Investors currently seem to be avoiding the real estate group specializing in shopping centers. The exit restrictions will certainly leave marks on the balance sheet. However, more and more people are now drawing back to the 21 shopping temples that the company operates in Germany, Austria, Poland, the Czech Republic and Hungary.

At the Annual General Meeting, CEO Wilhelm Wellner announced that the stores in Germany had opened 97 percent again. The frequency of visitors to all shopping centers is therefore 73 percent of the previous year’s level. Investors are still holding back, the price showed hardly any signs of recovery after the corona shock. In a positive scenario, this enables an above-average chance of profit, especially since the SDAX share is quoted significantly below the net asset value, i.e. the value of the assets less liabilities. At the end of 2019 it was 42.90 euros.

The boat manufacturer Hanseyachts has recovered more powerfully than the Immo share since the low. But the potential is far from being exhausted here. The Greifswald are the second largest manufacturer of ocean-going sailing yachts worldwide and rank among the top 10 providers in the market for leisure motor yachts. After nine months of the 2019/20 financial year, the company has a record order backlog.

In addition, last year, with the acquisition of Privilege, the Northern Lights brought a promising manufacturer of luxury sailing and motor catamarans into the house. Unlike the auto industry, the boat market has no structural problems due to the changeover to e-mobility – and can therefore quickly regain its former strength if the general economic conditions improve. Hanyseyachts is well prepared for the comeback. In the lockdown, the company continued to produce with the handbrake applied and can quickly serve customer requests.


The robust ones

Particularly attractive for more defensive investors are companies that have done well in the crisis due to their robust business model. Germany’s largest wine dealer, HAWESKO, is one of them – after all, vine juice is booming even in times of Corona. At the start of the year, the company generated an increase in sales despite the lockdown, driven by brisk online trade. Business is also likely to have gone well in the second quarter that has just ended. One indication of this is that the Hamburg-based company would like to squander all of its profits from 2019. While numerous companies cut their profit sharing or canceled it altogether, HAWESKO goes one better: the regular payment of EUR 1.30 per share comes with a bonus of 45 cents. This translates into a dividend yield of just under five percent. Now that the gastronomy has opened again, the wholesale business should gradually increase. The next quarters could also go well, as the recent positive development in retail and e-commerce had compensated for the negative effects in the B2B area.

High-tech is the profession of PVA Tepla. The company is known for innovative systems for vacuum, high temperature and plasma processes as well as for quality inspection. The Hessen are operationally well positioned. Between January and March, the company achieved an operating profit increase of six percent, with revenues remaining roughly the same. The order situation also continued to improve despite the pandemic. “We have not received any cancellations from customers and are entering the next quarters with a well-filled order backlog,” says boss Alfred Schopf. The course is set for further growth. The analysts at Matelan Research also see it that way and expect earnings to double between 2019 and 2021. With a P / E ratio of 20, the small cap is cheap.

Boss and founder Gottfried Greschner safely maneuvered through the crisis into the world market leader for telematics solutions in local public transport (PNV), init innovation. Whether it’s ticketing, passenger information or operational optimization, the Karlsruhe company covers all processes with a fully integrated telematics system. The digitization specialist also has products for compliance with hygiene and clearance rules that bring additional orders from the PNV. In the first quarter, earnings increased by 14 percent, operating profit and earnings per share more than tripled. Chef Greschner maintains the annual forecast of around 180 million euros in sales with an EBIT of 18 to 20 million euros.

The management of 7C solar parks is also optimistic. The operator of solar and wind farms raised its annual targets at the end of May. The board wants to achieve an EBITDA of “at least EUR 37 million”, previously EUR 36 million was planned. This was preceded by a strong first quarter. The signs point to expansion in the further course of the year. In mid-June, 7C Solarparken started up its first photovoltaic system floating on a lake. “We assume that the company will significantly expand its portfolio for electricity generation from renewable energies in the next few years and that the earnings momentum will be correspondingly positive,” said Guido Hoymann, analyst at Metzler Bank.

Perhaps there is already a higher profit than expected this year. The 7C board of directors was recently confident that the plant portfolio could be increased to 220 megawatts before the end of the year. The former Ebitda target of EUR 36 million was based on a maximum generation capacity of 200 megawatts.


The crisis winners

Some companies are growing despite, others because of the pandemic. Va-Q-tec belongs to the second group. The turnover of the Wrzburg-based specialist for products and solutions in the field of thermal insulation increased by 15 percent to 17.6 million euros in the first quarter, while the operating result rose disproportionately by 27 percent to 2.8 million euros. The business was given a boost by COVID-19. According to the company, more than half of all internationally shipped corona test kits are transported with safe transport solutions for temperature-sensitive products from va-Q-tec. The healthcare industry now generates three quarters (73 percent) of its sales. The pandemic is far from over, so chances are good that the high pace of growth will continue.

QSC is also committed to growth. Since the virus crisis, the IT service provider has counted thanks to the forced digitalization to the winners. QSC focuses on future markets with great potential, such as the cloud or the Internet of Things (IoT). In the latter area, QSC recently teamed up with the software company TeamViewer and developed an IoT solution that can be used to equip machines relatively easily with digital sensors and thus make them Internet-enabled. In Germany alone, the IoT market is currently estimated at 25 billion euros per year.

The other two targeted markets, integration of SAP programs and cloud services, are also in the double-digit billion range. QSC wants to cut a larger slice from this cake. The medium-term growth strategy is to increase revenues by 13 percent this year. In 2021 the growth is expected to be 16 percent, in 2022 the increase will even be one fifth. This potential is hardly taken into account in the current share price.

Medios shows that health is always in demand. After a record year, the specialty pharmaceutical manufacturer also got off to a flying start in 2020. The Berlin-based company is not directly active in the matter of corona, but Medios benefits from the current situation, among other things, through its health-promoting services such as health checks or nutritional analyzes. The latest highlight of the company specializing in high-priced medicines for chronic or rare diseases is the tripling of capacities. Medios has also made a number of plans on the capital market: promotion to the SDAX. That would further increase the attractiveness of the share.


INVESTOR INFO

Profit growth

According to analysts’ estimates, the signs are pointing to growth again in 2021, while profits in the current year threaten to collapse with both blue chips and small caps. The companies from the back of the stock exchanges are expected to be significantly more dynamic than the DAX companies. In the SDAX, the expected dynamic is almost as high as in the smallest value segment Scale 30.

Performance

In the period under review from July 15, 2019, the secondary stocks are ahead. The DAX achieved a performance of around three percent. The SDAX and Scale 30 posted growth of around seven percent. Even before the corona crash, the second-line stocks were in the lead.

Stock picking is the strategy of portfolio manager Bjrn Glck. A look at the history shows that the Lupus-alpha expert has a good hand. His fund has grown by around 50 percent in the past five years, which is almost 15 percentage points above the benchmark.

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More news about QSC AG

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